Getting More Profit for Your Business
Profit should be at the top of any business owner's mind. Here are three tips for making sure yours keeps growing.
Opinions expressed by Entrepreneur contributors are their own.
While personal reasons for going into business may vary, profit should be one of the goals for your new venture. What if it isn't? Then it needs to quickly move up your list of reasons, or you may find it difficult, if not impossible, to succeed.
The late Jim Rohn, one of my favorite business mentors whose rags-to-riches story inspired millions, once said that success is a "numbers game," and nowhere is this more true than in generating a profit.
So whether you're uncomfortable with the idea of profit or you accept it as your company's objective, here are three simple guidelines to establish a profit orientation both in your mindset and your operations:
1. Adopt a "for profit" mindset and accept the fact you need profit to survive.
This is easier said than done, but it can be achieved if you're open to examining your beliefs about money, wealth and profit and committed to changing your point of view.
Jim Rohn also pointed out that while some religious teachings may promote the idea that it's hard for a rich person to get into heaven, they don't say it's impossible. That's an important distinction that may help shift your own perspective on wealth.
Also, consider that business is among the few games around that let anyone play regardless of social status, education or age, and that can produce substantial personal wealth in 10 years or less. Not a bad return if you look at business ownership as one of the best long-term investments you can make in yourself.
2. Aim to buy ever lower and sell ever higher. Years ago, businesses could survive on lower profit margins, especially in retailing. But these days, increased overhead and competition, along with digital offerings that let customers easily compare prices and services, mean you need higher margins and repeat business to survive.
Fortunately, new technologies offer great opportunities to consistently buy or produce something for $1 or less, then turn around and sell it for $10 or more and deliver impeccable customer service.
To make your numbers work, you also will need to keep a keen eye on costs, including the growing number of hidden expenses such as credit card and other transactions fees, and to focus on maintaining consistently high margins and repeat sales.
3. Know your numbers, then work up the vital numbers.
"Knowing your numbers" means not only knowing your costs, but also which numbers will accelerate your bottom-line growth.
Related: How to Create a Profitable Business Idea
Here is a "Five Ways" formula which can work in any business. Very simply, if you focus on the following five things you can multiply your bottom-line results.
- Sales conversion rate
- Average dollar sale
- Average number of transactions
- Profit margins
Here's how the "Five Ways" formula works:
Leads x Sales conversion rate = Customers
Customers x Average dollar sale x Average number of transactions = Revenue
Revenue x Profit Margins = Profit
To start getting the greatest benefit from the formula, try boosting your profit margins by at least 10%. Increasing profit margins is easiest and least expensive for most businesses, while generating more leads is generally hardest and most costly.
You can also boost profits by raising prices. Few people will notice a small increase in price, preferably on your best selling item, but you will immediately notice the difference in your profits.
Remember, all businesses need profit to survive, thrive and contribute to their owners, customers and community. The quicker you can generate higher and more consistent profits, the closer you'll be to achieving your own vision of success.